SARS Experience Preps Asia for Swine Flu Threat

Asian countries, insurers and risk managers are on high alert for the threat of a swine flu pandemic, and see their experiences from the 2003 Severe Acute Respiratory Syndrome outbreak as good preparation for another such scenario.

Health authorities in Asia have swiftly responded to the World Health Organization's warnings about swine flu (Influenza A H1N1), activating precautions and pandemic plans, tightening surveillance at borders and stockpiling drugs.

Asia was caught unprepared by the SARS outbreak in 2003, when the region suffered severe economic and life losses. The authorities' swift responses to the current threat reflect their "higher level of alert and preparedness" to such threats, said Steve Vickers, president and chief executive officer of FTI-International Risk.

"Most of them have put in place basic surveillance and reporting systems, and appreciate the importance of being transparent with any situations," said Vickers. Companies in Asia are "more likely have in place crisis management teams and back-up operation arrangements," in comparison to corporations in the United States and Europe, he said.

Lessons Learned

People are ready to accept rules and procedures for the swine flu as they have recognized dealing with a pandemic is not just the responsibilities of authorities, said Vickers.

"The evidence to date suggests the world is well-prepared for a global pandemic, including being equipped with antibiotics, vaccine production capabilities and antivirals," said David Gott, head of life and health products for Asia at Swiss Re [85009].

The SARS and the later avian flu scare have raised awareness of pandemics and communicable diseases in Asia, said James Nash, chief executive officer for the Asia-Pacific region at reinsurance broker Guy Carpenter & Co. Many corporations and governments were directly affected by these disease outbreaks and are consequently better prepared to mitigate the impact of a recurrence, he added.

The SARS outbreak indicated the "types of problems we would most likely face in a pandemic" and potential economic consequences, said Willis HRH in a report. "Interestingly, the cost of SARS was primarily a result of the fear associated with catching the virus versus the cost of treating or preventing the actual infection."

Business Impact

In the past two years, Gott said Swiss Re has been working with insurers to study the potential impact of an influenza pandemic, based on an "epidemiological model" developed primarily to improve understanding of the possible outcome of a pandemic and to enable appropriate capital preparation for the risk.

The most obvious impact of swine flu will be to the insurance sectors that provide life and medical insurance coverage, as claims will undoubtedly be higher than was expected in pricing, said David Rains, head of the life and annuity, accident and health specialty practice at Guy Carpenter.

Medical providers will likely experience some financial impact from potentially "large numbers of uninsureds requiring treatment," Rains told BestWeek Asia/Pacific.

In Asia, Vickers said the pork industry has already been curtailed due to fear. Travel and tourism, hospitality service providers, entertainment and sports sectors will be affected most because people will "curb" overseas travels.

In the most severe scenarios, Rains said "discomfort" would reach into more business sectors, with retail and restaurants losing business due to increased social distancing.

The occurrence of the swine flu outbreak in Asia is "almost inevitable" because of the high number of international travelers going to and from Asia, said Vickers. The swine flu outbreak would slow down all aspects of life due to restrictions on public and face-to-face activities in Asia, where key economic activities are concentrated in a few densely populated cities.

Travel hubs like Singapore and Hong Kong and countries heavily dependant on tourism like Thailand and the Philippines will be directly affected by drastic cuts in travel, said Vickers. These impacts will be amplified in countries with "single-city economy" like Hong Kong, Singapore and Bangkok, he added.

Any further global spread of swine flu will hinder the recovery of "retail consumer purchase figures" and hence the export-oriented Asian economies like China, Japan and South Korea, said Vickers.

SARS, the last serious pandemic threat that occurred in 2003, resulted in 8,098 cases across 26 countries, with 774 deaths, according to the World Health Organization. Worldwide economic losses were significant, though the insurance impact was not. According to Bio Economic Research Associates, indirect losses to the worldwide economy were between US$40 billion and $50 billion, with medical costs and lost productivity comprising up to 2% of that (BestWire, Feb. 1, 2009).

Coverage Concerns

Vickers added that individuals and businesses involved in frequent travel should consider travel insurance protection, but also pay attention to specific policy rules for coverage in pandemic situations. Companies should consult insurers or brokers for coverage in health insurance, general liability, business interruption, employer liability and workers' compensation.

Keys for protection are first "knowledge and prevention," and second, "widespread proliferation of sufficient quantities of effective treatment," said Nash. "As long as infections remain manageable, the disease virulence is limited and the medications are effective, the outlook should be very positive," he added.

Swine flu is covered by most medical insurance policies, including in-patient and out-patient plans in Hong Kong, said Eva Chan, assistant general manager of marketing with health insurer Bupa Asia Ltd. [83752]. But swine flu is generally not covered by critical illness insurance plans.

In a pandemic, Chan noted it is likely for people who are sick from other illnesses to stay in private hospitals because of insufficient capacity at public hospitals. Therefore, a medical insurance plan is not just for pandemic disease, but also unexpected expenses affected by it. "When choosing plans, we encourage customers to study the product features in more details," said Chan.

Standard life and medical insurance plans will cover valid claims from influenza, but most Asian countries do not have adequate life protection against epidemic diseases.

"We've previously researched the life assurance protection gap for a range of countries in Asia, and the situation has not obviously changed over recent years," said Gott. The pandemic threat has not changed the "underlying need" for comprehensive life insurance, but it highlights the fact that "we are all vulnerable and in general raises awareness of the need."

There are few insurance products available designed specifically to cover exposures associated with pandemic flu, said Willis HRH. Extra coverage for pandemic protection has been designed to indemnify businesses for additional expense due to prolonged business interruption. But the coverage's limits and scope are narrow, said Willis HRH.

"Underwriters have indicated that before offering coverage, they would require stringent underwriting, including risk quantification and discussion of exposures. If offered, coverage would have large deductibles and significant premiums," said Willis HRH in its report.

As only limited number of insurance products are available to address a pandemic, Willis HRH said companies should follow risk mitigation procedures that focus on wellness, pandemic education and proper business continuity planning.

Permanent Threat

The threat of global pandemic is really "omnipresent," and it is much easier to consider insurance protection in the absence of a particular event, said Nash.

Companies that had purchased cover against losses from pandemics are relieved that they have protection from worst-case scenarios, noted Nash. For companies that have not acted and are not interested in protection, there may be some options available, but they are more limited and expensive than they would have been 30 days ago.

Since SARS in 2003, there are few new insurance products specifically for infectious disease. "From the life and health insurance perspective, I don't see a real demand for special coverage of specific diseases in Asia," said Gott.

Singapore's International Medical Insurers, a life unit of Raffles Medical Group, has launched a special insurance plan for protection against influenza A H1N1, avian flu and SARS after the government issued and alert for a possible swine flu outbreak in the city (BestWire, May 7, 2009).

In Hong Kong, Chan said Bupa does not have a special plan for swine flu, as it would limit customers' coverage. The insurer launched two new products and upgraded policy terms for more flexible services in the past few years to meet increasing demand for medical protection.

Since the SARS outbreak, medical insurance premiums increased from 2.9% in 2004 to 20.1% in 2008 in Hong Kong. "The trend is expected to continue and will help the growth of the medical insurance market," said Chan.

In Asia, Gott said growing demand for health insurance is generally driven by rising medical costs in developed markets and increasing wealth in developing countries. The threat of a pandemic will further raise awareness for insurance protection. "But it's a much broader range of needs and time horizons that potential customers of the life industry should be considering," said Gott.

"Once we are past this particular potential pandemic, more coverage options may be available, as insurers and reinsurers will be able to use this data point to help inform their risk tolerance for pandemic scenarios," said Nash.

(By Iris Lai, Hong Kong bureau manager: [email protected])